When you die, your 401k plan generally becomes the property of your designated beneficiary. What happens to the money after that depends on the beneficiary’s decision.
The beneficiary can do any of the following:
Keep the money in the 401k plan. This has the advantage of continuing to grow tax-deferred.
Roll the money over into an IRA in their own name. This also has the advantage of continuing to grow tax-deferred.
Take a lump-sum distribution. This will be taxed as ordinary income, but the beneficiary will have full control of the money.
It’s important to note that if you have a 401k through your employer, they may have different rules for what happens to the account when you die. Be sure to check with your employer to see what their policy is.
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